Other Options for Investing in Gold and Silver

In my column of various ways that an investor could consider purchasing some form of gold or silver, I neglected to include some of the more recent options that have become available. Several readers asked for my thoughts on some of them. I am pleased to oblige. Though I may not be fully aware of all the details of how they operate, let me share some of my observations.

Internet Gold Or Silver Checking/Savings Accounts

In 2001, James Turk established GoldMoney.com in Jersey in the Channel Islands off the coast of Great Britain. The concept is simple. Someone can establish an account based on ounces of gold or silver, make purchases and sales, and even transfer funds in a variety of currencies.

I have met Mr. Turk a few times and have a high regard for his professional experience, his strong analytical skills, and the research he has done to try to develop a quality product with customer safeguards.

Account holders own allocated gold or silver, on which they pay reasonable acquisition charges and storage fees. The company’s accounts are independently audited to verify the existence of the physical metal and proper accounting thereof.

This concept of establishing a bank account where the unit of account could be in gold or silver or a variety of currencies is an old idea. R. W. Bradford, who founded Liberty Coin Service in 1971, the company I now own, investigated doing so in the late 1970s. The State of Iowa had 31 state-regulated banks that were not subject to federal regulations. Such banks would be allowed to establish accounts in units of precious metals or foreign currencies. At the time, Bradford negotiated an agreement with me that if he could acquire one of these banks, I would become the bank’s president to implement these ideas. Bradford found one bank in a small town owned by a very old man who had never married and had no descendants. Unfortunately, the owner was simply unwilling to sell, so I never had the chance to initiate gold and silver bank accounts. A couple years later, I became part-owner and chief operating officer of Liberty Coin Service when Bradford retired from day-to-day operations.

Would I recommend such an account? I don’t know enough information to do that, so I would urge potential account holders to do their own thorough investigation.

There are two potential tax problems with Americans who own such an account. First, if the account is with a non-US company such as goldmoney.com, it may be necessary to check the box on your federal income tax form acknowledging that you have such a foreign account. Second, every time there is a reduction of the account balance, such as to transfer funds, that would constitute a sale. Therefore, Americans would be required to report each reduction of the account balance on their personal tax return and figure the gain or loss for each “sale.”

Internet Precious Metals Accounts

[Editor’s Note: Please refer to the additional information provided by BullionVault in the comments to this article.]

A program offered by BullionVault.com (founded about 2005) is similar in a lot of respects to GoldMoney.com, but appears not to include a payment processing service.

This company seems to be set up mostly for larger accounts as gold holdings are in the form of good delivery 400 ounce bars. It is possible to own smaller accounts, but they would only involve ownership of a fraction of a 400 ounce bar.

Physical delivery of the gold can be arranged, but only in units of 400 ounce bars.

I have not met the management or ownership of this company, so have no information on the caliber of them. The management acknowledges their background as computer professionals rather than precious metals traders, so apparently make available a high level of disclosure for a small fee. The company also claims that its holdings are audited on a daily basis to reconcile with customer accounts.

BullionVault.com is now a member of the London Bullion Market Association (LBMA), which normally would be a sign of financial strength. However, LBMA contracts are theoretically 100% backed by physical metals. At the Commodity Futures Trading Commission hearings on March 25, 2010, two different speakers testified that the LBMA now has only enough gold and silver in its vaults to cover 1-3% of its outstanding contracts. I was unable to tell if some of BullionVault.com’s position consisted of LBMA contracts. If you are considering an account with them, you should definitely get clarification on this issue. If the position is backed in part by LBMA contracts, I would consider this to reflect only the ownership of paper metals, which I consider risky.

The premiums, commission fees, and storage fees look to be competitive but are most reasonable for those who trade in units of 400 ounce gold bars. That points toward customers who can afford accounts of $600,000 in value or more. Commission fees also decline if the account holder engages in frequent buying and selling rather than a sit and hold posture.

The same tax concerns that apply to GoldMoney.com also apply to this company.

Physical Exchange Traded Funds

The widely known gold and silver exchange traded funds have the potential for owners of shares to redeem them in large quantities to obtain the physical metal. Within the past year, Sprott Asset Management has tried to improve this concept by establishing funds where owners can redeem smaller numbers of shares to obtain the physical metal.

So, Sprott established the Sprott Physical Gold Trust ETV (PHYS) and Sprott Physical Silver Trust ET (PSLV) so that investors could own shares backed by gold and silver bars that were stored at the Royal Canadian Mint. Shares trade at varying premiums above the intrinsic value of the underlying inventory. These premiums are often so high that it is possible to directly purchase physical gold and silver at a lower cost per ounce.

Generally, the Royal Canadian Mint (RCM) has a great reputation. It is a Crown Corporation owned by the Canadian Government, so operations are not focused on meeting quarterly targets to satisfy shareholders. The Mint also does not have a profit-sharing plan, so employees have no incentives to try to cut corners to increase their bonuses. Instead, the focus is on producing top quality products.

My own company has sometimes shipped scrap gold to the RCM to be refined. Still, the RCM did have a disappearance of $17 million of gold a couple years ago which was never clearly resolved despite a year of exhaustive investigations. Since then, my company has not shipped gold scrap to them for refining. Despite all the safeguards that the Sprott trusts have established (as have similar funds such as CEF) I would much rather pay a lower premium and get my own hands on the physical metals.

For short term holdings, these above accounts probably do not carry a high risk of default. Still, I am biased toward direct possession of physical gold and silver to provide the greatest security that you really do own them.

Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His bimonthly columns on collectibles can also be read at http://www.lansingbusinessmonthly.com under “Articles” and “Department Columns.”His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

Related posts:

Coin Update is not a retail website. If you wish to buy a coin or banknote, you should contact a reputable dealer. One of our sponsors (see ads at right and top of page) may also have what you’re looking for, so be sure to check out their websites.

Per policy, we do not advise on the value, authenticity, or rarity of readers’ coins and banknotes. For this kind of assistance, you should contact a reputable dealer, preferably one who’s certified by the American Numismatic Association and/or the Professional Numismatists Guild.

Vulgar and/or abusive comments will not be tolerated. Nor will trolls.

Allegations of fraudulent or criminal activity against a named party, when said activity has not been proven in a court of law, will be removed.

Comments

Ditto for Central Fund of Canada, which is the granddaddy of Sprott-type closed end funds – operating since the 1960s. Canadian (TSE) and US (AMEX)have access to gold & silver through CEF or just gold through GTU. Investors in Canada (TSE) can also trade their all-silver SBT (available on OTC for Americans, but hard to trade effectively).

In addition to holding Sprott and Central Fund of Canada funds, I’ve also had a BullionVault account for years. It’s a great service for buying and holding physical gold and silver, which you can vault overseas (say Switzerland for gold and London for silver). From a trading point of view it is also handy, as you can trade 24/7, so gives an option for trading part of your portfolio outside your own countries’ trading hours. It’s quick and easy to set up your initial account, with a free gram to allow you to play with the system.

As a BullionVault user you do NOT have unallocated gold. Every last gram you own is fully allocated in the vault of your choice — physically present, never lent or leased, and unavailable to anyone but you. It does not figure anywhere on our balance-sheet, and no creditor or liquidator of ours (nor of ViaMat’s, the custodian) could ever have any claim on it:

The key point in differentiating between allocated and unallocated metal is the matter of ownership. To quote the London Bullion Market Association:

“Unallocated…The client is an unsecured creditor…
“Allocated…The client has full title to the metal in the account, with the dealer holding it on the client’s behalf as a custodian…”

BullionVault makes it extremely clear – in its formally filed Balance Sheet, in its Storage Agreement with the custodian (ViaMat), in its freely published Terms and Conditions online, and through the payment of a commercial safekeeping fee (which has previously proven decisive in proving the custodial relationship in law) – that client bullion is indeed the client’s property. The user owns it outright and directly and without title being vested in a paper certificate. Full allocation is proven each day by the independently verified Daily Audit, and there is no financial instrument between a BullionVault client and his/her metal.

The Daily Audit is freely published for open scrutiny, and it is also studied and verified by our independent financial auditors (Albert Goodman) each year, together with a full physical audit of the metal in the vaults by independent assayers:

Patrick – as stated across our site and in our Terms & Conditions, all metal at BullionVault is fully allocated physical Good Delivery bars.
Daily reconciliation of all client property against formal Bar Lists, issued by the custodian (the privately-owned, non-bank specialist ViaMat), is freely published for clients and casual visitors alike to study. http://bullionvault.com/audit.do Unique in the physical custody business, this central register ensures there can be no double-counting, and proves publicly that the client’s metal is where it should be, inside the vault.

Anyone researching BullionVault can use these third-party and formal documents to begin their due diligence. Thorough analysis was of course undertaken by both the mining-industry’s World Gold Council and the RIT Capital Partners-backed Augmentum Capital when they each made an investment into our business in 2010.

Categories

More Recent Articles

The Royal Canadian Mint has launched new collector coins which are in tribute to the comic industry’s most known and loved storylines, the Justice League. Those who make up the super crime-fighting group include: Superman, Batman, Aquaman, Wonder Woman, the Green Lantern, the Flash, and more. The League is portrayed in the same way many fans remember them — […]

(Philadelphia, Pennsylvania) August 8, 2018 — It will be a Philadelphia “homecoming” at the ANA 2018 World’s Fair of Money for one of the finest known surviving examples of a 1794 Flowing Hair silver dollar. It’s also the homecoming for the person exhibiting that historic coin, Silvano DiGenova, President of Tangible Investments, Inc. in Laguna […]

The following Q&A is excerpted from Clifford Mishler’s Coins: Questions & Answers: Q: What is the real story behind “The King of American Coins,” the silver dollars of 1804? A: Proclaimed the “King of American Coins,” the prestigious dollar of 1804 is an impostor. It is known to exist in 15 examples, not a one of […]

The Royal Canadian Mint has launched a new series of coins which cleverly recreate some of the country’s most memorable stamps of the early 20th century relating to national anniversaries or services. The new rectangular-shaped coins, which include a total of three designs, distinctly recreate the look of real postage stamps. Each reverse design is […]

WASHINGTON — The United States Mint will begin accepting orders for the George Washington Presidential Silver Medal (product code S801) and the John Adams Presidential Silver Medal (product code S802) on August 16 at noon Eastern Time (ET). Both medals are priced at $39.95 each. The obverse (heads) of the George Washington Presidential Silver Medal features his portrait as […]

In this second preview article for the various auctions held during the World’s Fair of Money in Philadelphia, PA, this month, we will take a look at some of the highlights of U.S. coinage offered by Stack’s Bowers. Spread out over various sessions, we have decided to limit our preview to the coins offered in […]

The Royal Canadian Mint has released the second design which is part of the mega-coin series entitled “Keepers of the Parliament,” and focuses on the exquisite and impressive sculptures that stand at the main entrance to Canada’s stately Peace Tower building. From atop the Centre Block’s arched entryway, Castor canadensis (the North American beaver) extends a uniquely […]

Display will include previously unknown piece Washington — The United States Mint announced today that it will display three of the nation’s 1933 double eagle gold coins in booth 218 at the American Numismatic Association’s World’s Fair of Money in Philadelphia from August 14 to August 18. The display will feature two of the 10 […]

The World’s Fair of Money, held this year in Philadelphia, PA, is considered the major numismatic event in the United States. This week-long happening attracts collectors and dealers from around the world, and with it come a number of auctions held by various auction companies offering thousands of different numismatic items. In this first preview […]

Santa Ana, CA. — Stack’s Bowers Galleries is pleased to announce that Bruce Smith, a 20-year veteran in numismatics, has joined the company and will be operating out of the firm’s Southern California headquarters. Throughout his career, Mr. Smith has focused on developing portfolios of noteworthy rare coin properties and precious metals for his clients. […]